How Does Unemployment Work?

How Does Unemployment Work?

These days plenty of people are dealing with unemployment. To wrap our heads around the concept of unemployment we need to define the word itself.

People think the word “unemployment” simply means being out of work. This is not totally true, at least not as far as the government is concerned.

Unemployment applies to people who are currently out of work but are looking for work and having trouble finding it. Usually unemployment is a direct result of being fired or laid off. People who simply have no job and weren’t laid off or fired are not “unemployed” as far as the government is concerned, rather they are “disaffected workers”. Disaffected workers aren’t eligible for unemployment benefits. Remember — unemployment assistance is available for people under certain specific conditions such as layoffs.

What Benefits are Available for Unemployed Workers?

Here in the United States, when a person has a job but gets laid off, they can earn unemployment benefits which are granted to them by the government to help that person “make ends meet” until they can find their next steady income source.

Unemployment Money

The money a person earns during unemployment comes out of a general social security fund. This means that workers who pay into social security are really paying a kind of “unemployment insurance” — don’t feel as though you’re getting a hand out. The money you pay into social security is your “premium” against unemployment.

Unemployment benefits are calculated as a percentage of the money a person earned while they were employed. Obviously, people who earned more money paid more money into social security and can therefore earn more money back during unemployment.

Not all unemployment compensation is financial — there are plenty of other programs set up to extend benefits, like  health care, during unemployment. These benefits and unemployment payments are typically paid out for as much as 26 weeks, though the government has been known to extend that time during recessions or other downturns in the economy. Obviously, once a person finds work again, these unemployment benefits end and they start earning their own cash once again.

Some Facts About Unemployment

It is likely that there will always be a certain percentage of the population unemployed. Even during our greatest financial times in this country there has been a 2-3 percent rate of unemployment.

As of this writing, the unemployment rate announced by the government is around 10.6%. For reference sake, ten years ago the unemployment rate was a measly 4.2%.

Some states, like Texas, have a fairly decent unemployment rate right now — that state is holding at around 8%.  Other states, like Michigan (hit hard by an economic recession and financial misery in the auto market) is average around 16% unemployment, though many critics say that number should be much higher due to under-employment.

Unemployment is a serious problem. Luckily, the government has programs in place to help us through these difficult times.

This is part of a series of blog posts we’re publishing about How Stuff Works. The other posts in this series include: